Effect of bank credit on agricultural gross domestic product

Purpose. This study aimed to provide the central bank of Bangladesh with some empirical data on the impact of bank agricultural credit on agricultural output as a priority sector lending. Methodology / approach. Econometric analysis is applied to discover the nature of the relationship between banks’ agricultural credit and agricultural gross domestic product (GDP) and to find the impact of bank agricultural credit on agricultural output in Bangladesh. Data are extracted from secondary sources, i.e., Bangladesh Bank, Bangladesh Bureau of Statistics, World Bank, and Ministry of Finance for 1991 to 2018. Time-series data are analyzed using the Augmented Dickey–Fuller (ADF) unit root test and the Johansen cointegration test and later examined with Vector Error Correction Model (VECM). Results. The Augmented Dickey–Fuller unit root test confirmed that the variables were non-stationary at their level data and became stationary after taking their first difference value. Since the variables are integrated at I(1), we performed the Johansen Co-integration test. Subsequently, one co-integration equation was found, and Vector Error Correction Model estimation was done afterwards. According to the results of VECM estimation, bank agricultural credit, pesticide consumption, and use of cropped areas have long-run relation with agricultural output. Originality / scientific novelty. This study reveals the nature of relationship and assessment of the impact of bank credit on agricultural GDP with empirically valid techniques and tools. In this context, the data from Bangladesh remains very rare. Moreover, for those works which have been done in the context of Bangladesh, appropriate methods and techniques are not always inherent. Hence, this significant research gap is addressed in our present study. Thus, we expect that the findings of this study from Bangladesh based on empirically valid standard techniques can incrementally contribute to the existing literature. Practical value / implications. Findings of this research, can be used as an information basis by the central bank of Bangladesh. Based on the findings of this research, Bangladesh Bank should initiate new policies and programs regarding agricultural credit for the projected increase in agricultural GDP in Bangladesh.